Shift the 28% Levy Lid to State Collection
This tenet dives into turbulent waters, so let me ask this: please read all the way through this explanation before drawing conclusions. I believe I’ve considered many of the concerns surrounding this tenet, but I can’t explain everything with one-really-fast-explanation… and sometimes concerns or issues brought up early are addressed toward the end. So keep an open mind, and if you have concerns when you get through all the tenets (especially Tenet 5), then send them my way. I’ve strategically placed contact links at the end of the Tenet 5 explanation.
Local levies are designed to fund enhancements to basic education. In most districts today, local levies simply make up the difference between the amount the state provides, and what it costs to provide basic education. Put another way, lack of ample funding by the state has shifted basic education funding onto local levies. The result is that the state is not meeting its Paramount Duty to provide ample funding for education. These assertions aren’t new – nor are they much disputed. In fact, this shifted funding burden played a significant role in the push to redefine basic education with ESHB 2261.
So to paraphrase, local levies are already funding basic education, they’re just collected locally rather than by the state. In my plan, we would do the following: set levy rates in all districts to the current 28% cap, and have that money collected by the state; get rid of all grandfathering and set all districts to 28%; and (for Option A: LBA-based collection) provide assistance for districts in which the 28% rate would be overly burdensome, creating a new mechanism called Local Burden Assistance (LBA) that uses the existing Local Effort Assistance (LEA) formula to determine the amount of tax burden relief.
I’ll explain each of those in turn, in the next section.
Summary:
Let me first reassert that local levies are largely funding basic education already. Next let me give you a statistic: current local levies generated $1.791 billion in 2009/2010. If all districts in the state were to approve local levies, at their maximum amounts, it would generate $1.931 billion. The conclusion you could draw from that is: 93% of the statewide local levy revenue capacity is being collected. Most districts have a levy (only 15 of the 295 districts across the state do not have a levy); 92 districts are at 95% or above of their levy capacity. Of course, that leaves 188 districts that are somewhere between no levy and 95% of their authority (295 districts – 15 (no levies) – 92 (at or above 95% capacity) = 188 remaining). What does that mean? Well, when you take an unweighted average (each district treated equally), the percentage of levy capacity being collected across the state is 72%. But wait, I said 93% of the statewide local levy revenue capacity is being collected – what gives? The answer is that districts with larger enrollments have a higher propensity to run and pass levies. Another way to think of it is that only 7% of the local levy capacity, statewide, is not being collected.
If your eyes aren’t glazing over yet, congratulations. That’s a lot of numbers. The summary is that most schools already have local levies, most of the local levy capacity in the state is already being collected, and local levies are largely being used to fund basic education. It makes sense, then, that those local levy funds should be dedicated to and recognized for what the truly are: basic education funds. Doing so provides a handful of benefits, introduces a few challenges, and ends up requiring a large spreadsheet to analyze. Let me go through each of those – benefits, challenges, and the spreadsheet – in turn.
Reasoning:
Modeling:
Benefits:
Challenges:
I’ve mentioned modeling a few times now. I created a spreadsheet (one spreadsheet with multiple cross-referenced worksheets) and populated it with all sorts of education finance numbers, calculations, models of different approaches that could be taken to fund K-12 education, and applied colors and heat maps to ferret out the patterns I was looking for. I’ve included a PDF version of those worksheets, to illustrate how these tenets, models, and revenue sources come together.
You’ll notice that there’s lots of information in those PDFs that might be difficult to decipher. In part, that may be due to how many different models/scenarios I went through in trying to find the best solution. If I get feedback that it’s too difficult to understand, I’ll try to provide some additional explanatory information. Regardless, I wanted to provide some numeric representation of these tenets and models, so those links can be found on the Modeling page.
Those of you familiar with levies know that these local levies are considered excess levies, which means they’re above the $10 dollars per $1,000 limit for property taxes (above that, all levies must be approved by 60% of the voters, or for school levies, 50%). This is also known as the One Percent Limit. The question is, if these levies are excess levies that must be approved by voters, how can we shift them to state collection? Great question.
The answer has to do with how authority within or under that $10 per $,1000 is divided. The state has authority for the first $3.60 of that $10. The state collects a portion of that $3.60 authority, and applies all of those revenues for K-12 education – the amount it collects varies, but the current statewide average is about $2.12 of that $3.60. In my plan, collections from local levies are shifted into the remaining $3.60 authority, and thereby collected by the state, and statutorily dedicated to for K-12 education.
How would this be implemented? If this plan is put into law, once it went into effect, at the conclusion of a local levy term, the shift from local to state collection would occur. Going back to the Levyville district, if there was an existing 4-year local levy and it expired in 2013, those funds would continue to be collected by the Levyville district until 2013… and then for the 2014 collection year, the 28% levy amount would move down into the $3.60 authority and be collected by the state. Levyville would be guaranteed to receive the same revenue amount (associated with their local levy) they received in 2013, but it would come from the state instead of from the county treasurer.
One last important point: this would only apply for Maintenance & Operation levies (M&O). Those are the only levies bounded by the 28%.
You might be wondering what happens to a local community’s ability to directly support their district, if the state begins collecting those local levy monies. I address that question in Tenet 5.
Another challenge associated with setting all districts to 28% has to do with different tax bases across the state, often referred to as Assessed Values (AV). When you set the levy rates to 28% across the state, the burden on high-AV areas is relatively low, but the burden on low-AV areas is quite high. Equity is good, but onerous relative tax burdens in portions of the state is not. For local levies today, this problem is addressed by something called Local Effort Assistance, or LEA. The reasoning behind LEA is captured in the RCW that defines it:
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The purpose of these funds is to mitigate the effect that above average property tax rates might have on the ability of a school district to raise local revenues to supplement the state's basic program of education. These funds serve to equalize the property tax rates that individual taxpayers would pay for such levies and to provide tax relief to taxpayers in high tax rate school districts.
No need to reinvent that wheel. In my plan, the same LEA multiplier for each school district applies to shifting the 28% collections to the state, in the form of a tax credit of sorts, paid for with a fund or program I would call Local Burden Assistance, or LBA. To see how this works, let’s apply it to Levyville. Levyville currently receives Local Effort Assistance funds from the state, such that for every $90 they raise, the state supplements with $10 in Local Effort Assistance. When my plan is implemented, and the state begins collecting the equivalent of its 28% levy proceeds, taxpayers in Levyville will get a 10% rebate/reduction/credit to that 28% rate through the LBA program. That may sound complex, but really, it means folks in Levyville pay the same to the state as they did to the local district. And it means other districts, who perhaps received $60 dollars for every $40 their local districts raised, would get a 60% rebate/reduction/credit in their equivalent 28% rate from LBA. The multipliers for LEA are already available, they’re based on what I think is solid logic, and they ensure districts across the state aren’t strapped with a disproportionately large tax percentage/mil rate when contributing to education. This is a little difficult to explain or understand using words; it’s a little easier to visualize when seen in a spreadsheet (at least for me).
Of course, those LBA rebates cost money, so to speak. In my model, education funding is a self-sufficient and wholly contained fund. As such, in my modeling I’ve created an LBA fund line-item that pays for these LBA rebates/reductions/credits out of total K-12 education revenues. That becomes important as we move through some of the other tenets.
Local levies are voted upon for a specific term, anywhere between one and four years. Let’s take a four-year levy, in an example district. Let’s call it Levyville. Every four years in Levyville, the school district puts together a team of folks to put the continued local levy before its constituents, the local election folks put the levy on the ballot, and then… everyone in education holds their breath. Will it pass? Will their funding source be stable? Remember, that levy funding is providing for lots of basic education offerings, so without it some programs would have to be cut (i.e., layoffs, larger class size, fewer learning opportunities, assistance for some students dropped). Lucky for Levyville, it passes. Then four years later, the same collective breath-holding occurs. Some folks think that’s a good thing – a sort of mandate on local schools to present their case for continued support every few years. I understand that perspective to a certain point. But imagine this: let’s say that 20% of your paycheck was subject to voting by your workmates, and every four months you had to convince them you were living up to expectations. Doesn’t matter that you’ve been working with difficult clientele, or that your boss foisted higher reporting requirements on you, or that the economy constrained sales, or that you were being measured on whether your coworkers showed up to work (over which you had little say); you still had to get the votes of your workmates for 20% of your paycheck. How would you feel about adding onto your house? Financing college for your kids? Committing to a basic improvement for yourself, like getting your four-year college degree with night classes, not knowing whether four months later you wouldn’t have enough for tuition? Would be tough, wouldn’t it. Welcome to Levyville, where funding for basic education programs are subject to being stripped every four… or three… or two years. Having the state collect that money in perpetuity, as part of the ongoing funding for basic education (not subject to going back to the voters every four years) provides stability in education funding that’s critical to building a solid, long-term competitive program of education in our state that will prepare our students for whatever the future throws at them, or us.
Another benefit in doing this is around equity. One very important premise built into ESHB 2261, and for education in Washington state in general, is that all students in our state deserve a robust and equal basic education. The basic education a student receives in Bellevue should be the same as the basic education received in Brewster. As a state, this is an imperative. Well… the follow-on logic is that people in Bellevue should contribute to that basic education, and so should the folks in Brewster. That’s why part of my plan is to set all districts, across the state, to the 28% levy lid. But before you get too excited about skyrocketing tax rates in low assessed-value areas, know this: my plan also includes refunds/rebates/assistance for the same districts for which Local Effort Assistance (LEA) applies, using a new fund/program I’ll call Local Burden Assistance (LBA)... a fund that uses exactly the same LEA formulas in use today. And coincidentally, for most districts, the resulting actual tax rate is quite close to the current voter-approved levy amounts.
What does that mean, exactly? It means every district would contribute fairly to basic education. It also means that no undue burden would be placed on districts for which a pure 28% rate would make taxes untenable. It would be a fair, equitable, and stable funding source for education… using a taxing authority that’s already on the books as dedicated for education (for those of you wondering how this can possibly work within the $10 per $1,000 rule, stay tuned… that explanation is coming).
Another important element of setting rates to 28% for all districts has to do getting rid of grandfathering. There are 91 districts that are grandfathered with levy lids higher than 28%, with rates ranging from 28.01% to 37.9%. If local levy rates are to be shifted to state collection, it would not be fair for those grandfathered districts to have taxes set at those higher rates. There are other grandfathered funding elements in current education formulas – such as grandfathered teacher salaries, grandfathered administrator apportionments – and the negative effect of such grandfathering is generally felt most keenly by neighboring districts. Grandfathering is antithetical to equity, and in my plan, it’s removed; those 91 districts that are grandfathered above 28% would be brought to the same 28% level that all other districts would be set to.
So to summarize, the benefits of this tenet are: it brings consistency to this portion of basic education funding for districts, it ensures everyone is contributing to basic education in an equitable way, and it gets rid of grandfathering.
Now, on to the challenges.
NEW: Two Additional Options for TENET 2
When you ask for feedback, you need to consider it and respond. I received feedback that I needed to consider the uniformity of tax requirement in my thoughts on Tenet 2. So I did just that, and have created two additional options for Tenet 2, along with full modeling for each option. These are called Option B and Option C. I’ve recast the original version of Tenet 2 as Option A: LBA-based collection (read further on this page for LBA definition).
These new options for Tenet 2 are the following:
Option A: LBA-based collection (this page)
Option B: Per-student based collection
Option C: Uniform mil rate based collection
For more information about Option B or Option C, click on the links above to jump to its respective page.
NOTE: This page discusses the overall reasoning behind Tenet 2. It also discusses Option A: LBA-Based collection. There is not a separate page further explaining Option A.
